Over-the-counter (OTC) desks played a crucial role in stabilizing trading during the recent cryptocurrency market crash by acting as buffers that contained volatility and limited broader systemic risks, according to a note from Finery Markets, a leading cryptocurrency ECN and trading SaaS provider ranked among the top 30 digital asset companies globally.
On Friday, bitcoin The leading cryptocurrency by market value, plummeted from around $122,000 to $103,000, with most of the losses occurring in the last few hours. The broader market weakened, marking massive losses in alternative cryptocurrencies and volatility in otherwise stable cryptocurrencies such as Ethena’s USDe synthetic dollar, Wrapped Beacon Ether (wBETH), and Binance Staked SOL (BNSOL).
USDe briefly plunged as low as 65 cents on Binance, largely due to the exchange’s own inefficiencies, while holding steady on other, more liquid avenues such as Curve, Fluid, and Bybit.
According to Finery Markets, the localized crisis could have spread if it had not been for OTC desks acting as buffers.
“The crisis underscored the value of secondary trading conducted through private OTC rooms. This infrastructure acts as a firewall against systemic contagion due to the fundamental difference in order book structure,” the firm said in a report shared with CoinDesk.
The firm explained that, unlike centralized avenues like Binance, which rely on central and visible liquidity, OTC desks offer a unique private environment with off-screen liquidity tailored to each participant.
“[This] “Dark liquidity significantly reduces the spread of systemic risk,” the firm said, adding that private rooms can help avoid bank run-like dynamics caused by visible panic in public order books.
OTC desks and centralized exchanges differ in the way they provide liquidity and execute trades. On OTC desks, transactions are carried out privately between buyers and sellers or through private liquidity pools. Institutions and large traders often transact through OTC desks to avoid affecting the current market rate of the asset.
Centralized exchanges operate transparent order books where all participants can see available buy and sell orders, creating visible liquidity but also exposing the market to rapid, panic-driven volatility.
Increased volume in galas
The institutional flight to stability during the major liquidation event on October 10-12 is evident in the increase in trading volume within Finery Markets’ private trading rooms.
Week over week, volume for BTC/USDT and ETH/USDT pairs in these private rooms increased by 107%, significantly outpacing the 48% growth seen on centralized platforms. At the same time, bid-ask spreads, a key indicator of liquidity, narrowed sharply in Finery’s OTC markets, reflecting greater market depth and stability.
The chart shows that the 0.01 BTC bid-ask spreads on Finery were significantly tighter than those on major centralized exchanges such as Coinbase, Bitstamp, Kraken, and Binance.
In other words, executing large trades was easier in Finery than in other avenues.
